Deloitte’s 2025 CRE Outlook: Cautious Macroeconomic and Real Estate Optimism

For the past couple of years, the commercial real estate industry faced high interest rates and inflation, changing space usage and climate-change-related hazards. According to Deloitte’s just-released Global Real Estate Outlook Survey, this resulted in more defensive postures, with organizations “fortifying their balance sheets, shoring up core capabilities and focusing inward, rather than being on the offensive.”

However, change is coming over the next 12 to 18 months. The global survey reported reasons for optimism, including recession avoidance and a decrease in inflation. While single rate cuts won’t automatically lead to a sudden uptick in loans, refinances or acquisitions, the survey pointed out that “commercial real estate owners and investors are hopeful that 2025 will emerge as a year of potential recovery.”

Tim Coy, Deloitte’s Research Manager for the Commercial Real Estate Industry, told Connect CRE that 68% of respondents said leasing, capital markets and lending conditions should also improve, “boosting the underlying performance of assets and investments underpinning business health.”

 Turning to Technology

CRE has been behind the eight ball in terms of technology usage. However, it seems as though things might change. The survey report commented that 81% of respondents said that spending is most likely to be focused on data and technology in 2025.

Then there is artificial intelligence. On the positive side, Coy said that 97% of respondents mentioned that their companies are committing resources to AI solutions. “This is a sizable year-over-year increase,” he added. CRE companies in the early stages of adopting AI are focused on using the technology for accounting and reporting, while those involved for a while focus on financial planning and analysis. “Some are even dabbling in property operations,” Coy said.

On the downside, plenty of challenges exist with AI and other technology implementations, one of which involves data. “Real estate data has historically not been standardized, and data fragmentation is a common issue,” Coy explained. Bad or incomplete data could mean incorrect results from AI-generated content, leading to poor business decisions. “Data readiness and security/confidentiality are the top two challenges identified in our survey with further scaling AI,” Coy said.

Stringent Support of Sustainability

Sustainability in the face of climate change-related hazards continues to be a commercial real estate focus. “How can real estate companies best position their properties to mitigate the impacts of climate change and reduce the negative impact of their operations on the environment while meeting financial imperatives?” the survey report asked.

It’s possible. Coy pointed out that sustainability is moving from a compliance-driven mandate, with “only 16% of our survey respondents investing in sustainability for compliance alone.” He pointed out that 36% of respondents commented that they’re focused on a more balanced approach, emphasizing investments that generate modest financial returns while following regulatory requirements. “Leading from the front, 22% actually believe that sustainability has become embedded in their organizational DNA and believe it will yield long-term benefits,” Coy said, adding that building retrofitting is a top sustainability priority.

Heralding the Headwinds

While “cautious optimism” seems to be the theme of the Deloitte survey and outlook, Coy pointed out some mentioned blips and apprehensions:

• Elevated interest rates, with questions about the impact of higher-for-longer rates.

• Tax policy changes, including enforcement of Pillar Two, the 15% global minimum tax.

• Upcoming elections in 80 countries by the end of 2024, “the results of which could hold long-ranging implications for social and fiscal policy,” Coy said.

• Cost of capital, especially in light of upcoming debt maturities for commercial mortgages. “Global regions are seeing this play out at different scales regionally,” Coy remarked.

Still, Coy said that overall, there is a shift from the more defensive posture of prior years to a more strategic, offensive strategy. As such, it’s up to CRE professionals to make informed decisions, keep an eye on long-term growth horizons and prepare for more active property management.